Please, Don't Give My Roku Stock Away

Key Points

Roku shares moved higher on Friday afternoon, after Bloomberg reported that the streaming pioneer was exploring a potential sale of the company.
With Roku growing faster than it has in four years, it seems like the wrong time to cash out.
It’s more bitter than sweet when a high-conviction stock you own is on the bidding block.
10 stocks we like better than Roku ›

You’re not supposed to be upset when you see your largest holding trading sharply higher, but that’s just where I was on Friday afternoon. Roku (NASDAQ: ROKU) shares popped 20% on the final market day of the week, most of that coming in the last hour and change.

I ran through the usual suspects that would cause this kind of midday jump. It couldn’t be fresh financials. Roku is six weeks away from its next quarterly update, and even if that wasn’t the case, it wouldn’t push out results during the trading day. A major analyst upgrade wasn’t going to create much of a fuss for a widely followed company. An activist investor rattling the cage was unlikely. With Roku’s ascending fundamentals and market-thumping stock performance over the past year, a proxy battle couldn’t be in the cards.

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A marketing or content partnership, like the promising ad deal Roku struck with Amazon last year, can move the stock higher. It just didn’t seem likely that it would be that much higher. That left the lone possibility for the spike being Roku’s status as a buyout candidate, and, unfortunately, I was right.

A couple and their dog channel surfing from the couch.

Image source: Getty Images.

Thinking outside the box

Bloomberg reported late in Friday’s trading day that Roku is exploring the sale of the company. Unnamed sources close to the matter say that discussions have taken place with at least one media company as a potential buyer. Buyout chatter doesn’t always move a stock, but when it comes from a historically reliable news source, the market takes it seriously.

Buyout talks usually end in question marks instead of exclamation points and signatures, and Roku isn’t desperate. It will need someone to pay a healthy premium to take it out of investors’ hands. The shares have soared 87% over the past year. It was crushing the market with a roughly 50% jump before Friday’s pop.

Roku is finally becoming the company investors were hoping it would be. It’s been consistently profitable over the past year. The 22% year-over-year growth it posted in its latest quarter is its strongest top-line increase in four years. The same company that was struggling with monetization a couple of years ago is coasting now. Roku delivered 27% growth in ad revenue and a 30% uptick for its subscriptions business in the first quarter. With a growing audience of more than 100 million homes on its platform, Roku continues to be larger than the well-financed consumer tech titans in this space.

It only helps Roku’s leverage that Evercore ISI’s analyst raised its price target on the shares earlier in the day from $160 to $185. Even after Friday’s afternoon surge, that analyst price target is a healthy 29% premium to its weekly close.

Teardrops in the bidding war

I’ve written about Roku’s buyout potential for years. Even last summer, in a podcast discussing the next potential Rule Breakers buyout, I went with Roku. I always figured it would be one of the consumer tech giants in this space. More than likely, I figured it would be a tech behemoth that never made a dent in this market. That’s you, Microsoft.

See also <!DOCTYPE html><html lang="en"><head> <meta charset="UTF-8"> <meta http-equiv="X-UA-Compatible" content="IE=edge"> <meta name="viewport" content="width=device-width, initial-scale=1.0"> <title>Exploring the Electric Vehicle Landscape: Tesla, Rivian, and Fisker</title></head><body> <h2>Tesla Faces Challenges as India Opens Its Doors</h2> <p>Sentiment toward electric vehicle stocks was mixed in the week ending on March 15, with the industry experiencing a rollercoaster fueled by concerns surrounding market leader Tesla, Inc., and broader economic uncertainties arising from unexpected increases in inflation rates.</p> <h2>Tesla's Diminished Outlook and India's Invite</h2> <p>As indicated by Future Fund's Gary Black, Wall Street analysts began recasting their delivery projections for Tesla, expressing doubts about the short-term prospects. Deutsche Bank led the charge by revising down its March quarter delivery forecast from 476,000 units to 427,000 units. This adjustment factored in sluggish production uptakes for the Model 3 refresh and Cybertruck, along with a slower global adoption of electric vehicles. While maintaining a “Buy” rating, the firm slashed the stock's price target from $250 to $218.</p> <p>Conversely, Wells Fargo's Colin Langan downgraded Tesla from “Hold” to “Sell” and lowered the price target from $200 to $125, highlighting the absence of growth in the company's trajectory. UBS also joined the chorus, reducing its price target from $225 to $165 due to sluggish EV demand in Western markets, competitive pressures in China, and a conservative outlook on Model 2 volume for 2025.</p> <p>On a brighter note, Tesla seems poised to advance into the Indian market following the government's unveiling of a new EV policy designed to attract investments. The policy contemplates a reduction in import duties for EVs, under the condition that manufacturers commit to investing a minimum of $500 million and commence domestic production within three years. This beckons a stark shift from the previous 100% duty rate. Reuters outlined that under the new policy, eligible companies can annually import up to 8,000 EVs valued at $35,000 or higher at a reduced tax rate of 15%.</p> <p>Moreover, Tesla is gearing up for a robust quarter-end, teasing a potential $1,000 price hike across all variants of its Model Y line-up effective April 1.</p> <h2>Fisker Teeters on the Brink of Bankruptcy</h2> <p>The plight of the struggling EV player Fisker, Inc. took a turn for the worse this week, with shares plummeting over 50% amid rumors circulating about an imminent bankruptcy filing. Reports surfaced that the company engaged FTI Consulting and law firm Davis Polk to grapple with the possibility of filing for bankruptcy. A "going concern" warning accompanied the release of fourth-quarter results, further clouding the company's future.</p> <p>Reacting to these speculations, Fisker refrained from commenting on market rumors and committed to seeking additional capital while aiming for a strategic partnership with a major automaker. Earlier gossip alluded to discussions between Japanese giant Nissan Motor Co., Ltd. and the beleaguered EV player.</p> <h2>Rivian Finds Favor on Wall Street</h2> <p>Piper Sandler's analyst Alexander Potter made waves by elevating Rivian Automotive, Inc. from “Neutral” to “Overweight,” coupled with a price target boost from $15 to $21. The analyst justified the upgrade by citing a recent product showcase, capital expenditure reassessment, and a post-Q4 selloff. Potter acknowledged the risk of a mid-year retooling that could affect deliveries but remained optimistic about the warm reception to the fresh R2 SUV unveiling. He further hailed the upcoming R3 as a potential crowd-puller in the market, brimming with innovative design.</p> <p>Amid this enthusiasm surrounding new releases and plans to delay capital expenditures while leveraging existing facilities to manufacture R2, investors are encouraged to adopt a more bullish stance, per Potter's analysis.</p> <h2>Former Ford CEO Reflects on Electric Vehicle Transition</h2> <p>Mark Fields, former CEO of Ford, emphasized in a CNBC interview that the transition to electric vehicles is inevitable but will unfold gradually. Fields projected a niche market for internal combustion engines that caters to purists even as electric vehicles gain mainstream traction. He outlined that early adopters are driven by innovation and eco-consciousness, while the average consumer prioritizes cost and convenience.</p> <p>Fields flagged premium pricing, inadequate charging infrastructure, and lengthy charging durations as significant barriers to widespread EV adoption. In his view, the current landscape favors hybrid vehicles as a middle ground between traditional ICE models and fully electric alternatives.</p> <h2>Polestar Makes Strategic Pricing Move</h2> <p>Swedish EV manufacturer Polestar Automotive Holding UK PLC, now under the auspices of China's Geely Automobile Holdings Limited, announced a strategic pricing adjustment for its forthcoming SUV, the Polestar 3. The SUV, set for a U.S. launch later this year, will debut with a starting price of $73,400, far below the initial $84,000 estimate shared when the vehicle was unveiled in October 2022. All Polestar 3 versions will include the Pilot pack as a standard offering, incorporating driver-assistance features such as adaptive cruise control.</p></body></html><html><head> <title>The Rise and Fall of Electric Vehicle Stocks</title></head><body> The Electric Vehicle Stock Rollercoaster

Bloomberg’s report that Roku’s first conversation has been with an unnamed media company is surprising. The appeal to Roku is its agnosticism, a big reason it’s been able to keep three of the “Magnificent Seven” companies in this niche far behind in its rearview mirror. If a media company behind one of the leading streaming service stocks gobbles up Roku, it’s going to be harder to appeal to the thousands of other streaming apps on its operating system.

Sure, there’s an allure to pitching streaming ads to Roku’s gargantuan audience. Connected TV is the future, and Roku is in the pole position, with its viewers spending an average of more than four hours a day on the platform.

You can argue that I should be happy if someone is willing to pay 20% to 30% more for Roku stock than where it’s trading at today. Even if it takes a few quarters for the deal to close, it should beat the market. I can also just bow out when a potential deal is announced, putting that money to work elsewhere.

You would be right, but I’m still allowed to be selfish. When you put in the time and research into a high-conviction stock, it’s not easy to find a replacement. Suffering through plenty of highs and lows with Roku over the years, I hate to see a potential exit strategy now, when the bullish momentum actually feels sustainable.

I won’t get in the way of a buyout. I’m not going to storm the wedding and object to the pairing when given the chance. But I will take my premium and move on to the reception hall. So if you see me teary-eyed as the Chicken Dance plays, know that I wasn’t the chicken here.

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Rick Munarriz has positions in Roku. The Motley Fool has positions in and recommends Amazon, Microsoft, and Roku. The Motley Fool has a disclosure policy.

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